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By By Asantha Sirimanne
The Vanik-Asia take-over battle is testing the new Mergers and Acquisitions Code to its limits, with offers being disqualified and both parties calling upon the Securities and Exchange Commission to ensure that the Code is properly enforced.
The SEC which ruled the first offer of Asia to be invalid had again asked the company to ensure that they had sufficient support to be able to change the articles of Vanik.
The article prohibits any single shareholder from owning more that 10 per cent of Vanik shares. Originally incorporated to prevent the interference in management by dominant shareholders, the provision has turned out be a valuable anti-takeover defense for Vanik.
Last week Asia Securities went to courts to prevent Vanik from going ahead with its proposed take-over of Forbes Ceylon. Vanik however had prevented an injunction from being issued by asking for time to file answers.
Vanik Chief Justin Meegoda says shareholders controlling over 40 per cent have confirmed in writing that they did not wish to change the article preventing the ownership of over 10 per cent shares by a single shareholder. This included Commonwealth Development Corporation, Asian Finance Corporation as well as all employees and management.
To effect a change in the articles the support of 75 per cent of votes would be required by Asia.
Mr. Meegoda last week accused Asia securities of mis-using the Mergers Code to achieve objectives other than a mere take-over.
"In a free market if a particular company is not using their resources efficiently some other company to come and acquire because the existing management was not making proper sue of management," Mr. Meegoda said." But this is not a bona-fide offer."
He charged that Asia was making the offer to prevent Forbes Ceylon being taken over by Vanik. The court action also went to confirm this view, he said.
Companies for which an offer was made was prevented from engaging in transactions which significantly changed their balance, sheets such as a takeover of another company.
"It is up to the regulators to ensure that the code is not mis-used by making frivolous offers to achieve other objectives," he said.
He said contrary to news reports Vanik had never had real merger talks with Asia, but a major shareholder of Asia had initiated talks between the two firms to come to a common working relationship. The Vanik Board had decided not to merge with Asia Capital.
He also said the Vanik was not excessively leveraged at a debt to equity ratio of 2.5 to 1 which was even below the 4 to 1 ratio set by the company itself. What was important was to match the assets and liabilities with their maturities.
At the Forbes Ceylon Annual General Meeting last week minority shareholder Asia Capital had proposed that an independent director who is not connected to other companies be appointed to safeguard the interest of minority shareholders, market sources said. Prudentia Investment Corporation, an associate of Hayleys and Lanka Orix Leasing had proposed that Forbes Ceylon distributes excess cash to shareholders if the management was not willing to invest such moneys. As the company has hardly any debt, such as exercise would be readily accomplished.
Questions were asked about the recovery of a failed investment in ABC company in India. The investment was promoted by the then Ondaatje Corporation.
Meanwhile Asia Capital Chief Executive Ian Hardy had written to the SEC and Stock Exchange that changes be made to the Mergers Code to make it clear that it also applied to holding companies of listed companies and their Boards of directors.
When major transactions take place that involve the acquisition of disposal of over 25 per cent of net assets or major transactions among connected parties, Mr. Hardy proposed that shareholder approval should be sought. In addition he proposed that listed companies should be required to have independent non-executive directors on the board to protect minority shareholders.
The SEC is meanwhile awaiting a ruling from the Attorney General on the applicability of the Code to the proposed Forbes-Vanik transaction.
With the 1996 budget taking the punch off the beer price, investment into the bitter brew has never looked so sweet, industry analysts say.
After excise duty was reduced by 70 per cent from Rs 33.60 per litre to Rs 10 per litre the retail price of beer dropped to just over Rs 40 from nearly Rs 60.
This has caused the annual demand for the brew to rise from around 13 mn litres to over 30 mn litres.
The consumption of hard liquor is also on the rise. Last year legal arrack consumption had grown by 20 per cent up from 12 per cent in 1994.
The issue of new liquor licenses by the government is believed to be driving this growth.
"We believe this reform to be the most influential factor behind the growth in the arrack market in 1995," says Jardine Flemings Research.
Next year 27 new licenses would be issued to the Northern Province with an estimated annual sales of 4 mn litres of hard liquor and 0.03 mn litres of beer.
There was also a rise in liquor consumption with the rise of per capita income." There is a clear positive correlation between arrack consumption growth and income growth," Flemings said.
Total sales of legal liquor volume have grown by 15 per cent in 1995 to 64.8 mn litres from 56.3 mn litres in 1994. In 1993 it was only 49 mn litres.
Jardine Flemings research shows that imitation arrack sales have been falling from 37 mn litres in 1994 to 32 mn litres in 1995.
Sophisticated packaging has helped dampen imitation activities.
Illicit brews on the other hand are still showing an unhealthy growth trend. Jardine Flemings estimate that 77 mn litres of moonshine had been produced in 1995 accounting for 68 per cent of the total market compared to 75 mn litres in 1994.
"Given the existing price difference between legal and illegal arrack, the illegal market will continue to thrive," JF says.
The real growth story however is in beer. Though demand is estimated to have topped 40 mn litres a year the existing producers Ceylon Brewery and McCallum Brewery had only managed to produce 12. 4 mn litres in 1995, up from 11.9 mn a year before. Imports faced with high duty have grown marginally from 0.83 mn to 0.9 mn litres, leading to a shortage waiting to be filled. Ceylon Brewery is believed to have 71 per cent of market share, Compared to 22 per cent for McCallums.
CBL is planning a 200 per cent increase in capacity. Lion Brewery Ceylon Ltd., a new factory with BOI approval is already being built in Biyagama which will have an initial capacity of 30 mn litres a year. It could be upgraded in six phases to produce 180 mn litres a year.
Lion Brewery is hoping to raise Rs 250 mn in the Colombo Stock market by the issue of 12.5 mn shares at Rs 20 each. Jardine Flemings is lead underwriter for the issue.
Ceylon Brewery would hold 50.4 per cent of the new company capitalised at Rs 500 mn, Carlsberg Brewery Malaysia Berhad 24.6 per cent and the public the balance 25 per cent.
Ceylon Brewery and Carlsberg have both subscribed to their entitlement at Rs 20.
Existing shareholder of Ceylon Brewery would also be given preferential allotments.
The sexiest range of women's underwear made by a top Sri Lanka based lingerie factory is exported to the USA, officials said.
Slimline (Pvt.) Ltd., based in Pannala exports over Rs 2 bn worth of lingerie and foundation garments, mainly to the US and UK.
"The British market on the other hand prefers more conservative products,"an official said.
The company is part of the MAS group of companies which has several other companies, such as Unichela, Slenderline Shadowline, Bodyline and Shadeline also engaged in making lingerie and foundation garments.
It is a joint venture between Courtaulds Textiles p.l.c., of UK, Mast Industries of USA and MAS Holdings of Sri Lanka.
The group has annual export revenues of Rs 6 bn, Slimline Managing Director D. Gomes said.
About 54 per cent of the annual production is sold under the Victoria's Secret' label, one of the largest lingerie and foundation garment labels in the USA.
The rest is exported to the UK retail chain, Marks and Spencer.
"The panties retail around for around US $ 14 to US $ 16 per pack," Slimline's Head of Merchandising, Prakash Thiyagarajah said.
the company does not sell locally, though it is allowed to dispose 10 per cent of its output here, due to high taxes, Mr. Gomes said.
The company is the largest supplier to Marks & Spencer providing 40 per cent of the lingerie needs of the retail chain.
Exports to the UK has risen from 29.9 per cent of output in 1993 to 40 per cent in 1995.
In an air conditioned factory spread over 35,000 square feet, 1,200 girls turn out 1.5 mn pieces of undergarments each month.
Working conditions at the group's factories are some of the best in the industry, Sri Lanka Apparel Exporters Association Executive Secretary Sunetha Kannangara said.
The girls are paid a monthly wage of between Rs 3,000 and Rs 3,500 a month Mr. Gomes said.
Malini Abeysinghe who had worked for Slimline for the past four years said she earned around Rs 5000 a month by working overtime.
Last week the company donated an auditorium costing Rs 3 mn to the Pannala Maha Vidyalaya. The building was funded by Courtaulds Textiles of U. K.
Courtaulds Chief Executive Colin Dyer said the company would also provide books for the school's library.
Slimline Chief Executive Prasanna Hettirarachchi the company hoped to upgrade the laboratory of the school and start a computer centre.
Market Focus by analyst
As expected retail investors were unloading stocks to be liquid for the forthcoming Christmas season. The market shed 1% of ASPI points in the period and is in the region of 620.
Foreign investors picked up blue-chip companies for their portfolios though not in any significant quantities.HNI investors were keen on profit-taking due to the sudden surge in certain share-prices in the past two weeks.
The Shell-Gas company strike and its repercussions on the economy though it lasted only for a short period was felt in the review period. Wildcat strikes especially after '94 are a common occurrence due to indiscipline by employees.
The impression that was given to potential investors, with some Ministers asking the Gas company sale to Shell to be revoked is an amateuristic attempt to cover- up bungles made by the bureaucracy and politicians when negotiating with Shell for the sale.
With no possibility of any competition whatsoever for five years and limited price-controls in the business, Shell is a private sector monster which the government has created.As it is dealing with a necessity for industry as well as for households, if strikes of this nature occur frequently the economy could be worse off. Therefore it is imperative to restrict strikes in essential sectors such as gas, electricity, water, and posts and telecommunications.
As of date, Asia Capital offer to purchase Vanik has been rejected by the Vanik Board of Directors. It is also said that Vanik Inc., has been negotiating with the holding company of Forbes in the U.S.A to acquire Forbes on a complicated financial strategy.
The market is expected to ease-off for the time in view of the festive season. Most foreign investors are sceptical about the uncertainty regarding the rupee and its possible erosion of earnings. This is likely to prevent large investments for the time being.
A programme on Entrepreneurship Development for export-oriented small and medium entrepreneurs in the North Western Province will be organized by the provincial office of the Sri Lanka Export Development Board, Kurunegala on November 30 and December 1,7, and 8 from 8.30 a.m to 5.00 p.m at the SLEDB Provincial Office, Kurunegala.
The main objective of this programme is to promote and develop export-oriented SMEs in the North Western Province.Thirty five selected entrepreneurs will participate at this training programme. They are engaged in production of export- oriented product sectors, such as, coconut-based products, coir products, cut flowers and foliage, handicrafts, fruit and vegetables, prawn culture etc.
This programme will consist of two stages.Some important topics that will be discussed are ' What is Entreprenuership, Importance of Entrepreneurship, Management of Export Oriented Small and Medium Enterprises, Effective Marketing, Packaging and Importance of Quality".
Sam Stembo, Executive Director of the Sri Lanka Institute of Marketing (SLIM) has been invited by the Institute of Marketing Malaysia to address the first Asia Pacific Marketing Conference to be held in Malaysia, a SLIM statement said.
Mr. Stembo specialised in Agro Enterprise Development at the Asian Rural Institute of Japan. He is a diploma holder, member and a Registered Marketer of the Chartered Institute of Marketing (UK). He has also successfully completed the examinations leading to the professional status CPM-Asia Pacific (Certified Professional Marketer - Asia Pacific) conferred by the Asia Pacific Marketing Federation. He is currently in the final year reading for the MBA at the Postgraduate Institute of Management.
Hatton National Bank will introduce a long term housing loan scheme next month, and enter the Internet by year end. Despite the slowdown in the macro-economic environment HNB reported a third quarter pre-tax profit of Rs. 150 mn.
The pre-tax profit for the nine months ended 30 September 1996 had increased to Rs. 424.5 mn, compared to the pre-tax profit of Rs. 410.9 mn over the corresponding period in 1995. Post-tax profit recorded an increase of Rs. 2.5 mn over the same period, a press release said.
Loans and advances inclusive of lease rental have increased by Rs. 4554 mn reaching an overall total of Rs. 20,129 mn. Total assets which stood at Rs. 37,262 mn on 30 September 1996 has shown an increase. Total customer deposits too have grown to Rs. 25,881 mn as at 30 September 1996.
The bank has so far opened nine branches this year and will add two more branches in Cinnamon Gardens and Moratumulla before the year end.
HNB's joint CASHLINE and PET ATM network now stands at 35 and is due to expand by five further outlets before the year end. The Bank offers on-line banking services, round-the-clock to its corporate clients through the Bank-line. It plans to introduce telephone banking in the near future.
The Bank had introduced two new products to the market in the first half of 1996. A new loan facility on pawned jewellery is at present made available in 32 branches and HNB plans later to extend it to 20 more branches.
HNB had also launched a long term investment savings scheme called Silverline Investment Plan.
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